10A Exemption is qua an undertaking and not qua an assessee – Bangalore ITAT


Samsung India Software Operations Pvt Ltd Vs Addnl CIT [ITA No.399/Bang/2012] (Bang ITAT)

Facts of the case

The Assessee company, entirely held by M/s. Samsung Electronics Company Ltd (SECL), had claimed deduction under section 10A in its return of income filed for AY 2007-08. SECL being the sole owner of its branch office entered into a business transfer agreement with the assessee company on 5.9.05 for transfer of business of the branch office by way of slump sale as a going concern together with all its rights, properties and assets of the business.

AO held that undertaking was not formed by the transfer to a new business of machinery or plant previously used for any purpose and that the provisions of Explanation 1 & 2 to sub-section (2) of section 80 I of the Act shall also apply for this purpose. The AO pointed out that the undertaking of the assessee was formed by transfer of same plant & machinery which were earlier used by branch office.

AO also held that Sub-clause (7A) of section 10A which provides for eligibility of claim to the amalgamated company or the resulting company in the situations of transfer of eligible undertakings by amalgamating or demerged company in a scheme of amalgamation or demerger, but the situation of transfer of old plant & machinery through slump sale had not been provided in the section.

Assessee’s contentions

  • The assessee had furnished following documents in support of its claim:
    – Copy of business transfer agreement
    – RBI’s permission letter for transfer of assets of Indian branch office of SECL to the assessee company
    – STPI’s permission letter for transfer of STPI activities to the assessee company
  • Section 10A is specific to an undertaking registered under STPI Scheme engaged in export of software and an undertaking otherwise eligible for deduction should not be denied the same under the contention that the undertaking has a new owner.Reliance was placed on following rulings:
    (i) DCIT v. LG Soft India Pvt. Ltd. (ITA Nos. 623 & 847/Bang/2010)
    (ii) ITO v. GXS Technology Center Pvt. Ltd. (ITA No.616/Bang/2009

HELD:

  • A similar issue having identical facts has been decided by the ITAT Bench ‘B’ Bangalore in ITA No.623 & 847/Bang/2010 in the case of DCIT v. M/s. LG Soft India Pvt. Ltd.
  • In the present case also, the assessee undertaking existed in the same place, form and substance and did carry on the same business before and after the change in the legal character of the form of the organization. Therefore a mere organizational change was not a ground for the AO to hold that the assessee was not entitled for deduction u/s. 10A of the Act within the meaning of section 10A(2) of the Act.
  • We are also fortified by the decision of this Bench of the Tribunal in the case of ITO v. M/s. GXS Technology Centre (Pvt.) Ltd. in ITA No.616/Bang/2009

Conclusion

This ruling reiterates the principle laid down by various Courts that 10A Exemption is qua an undertaking and not qua an assessee.

Other Issues

Expenses incurred in foreign currency should be reduced from the export turnover as well as total turnover – CIT v. Tata Elxsi Ltd. & Ors. in ITA No.70 of 2009 (Karnataka HC) followed

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